BLBG:Treasuries Fall as Stocks Gain on China Data, Outlook for U.S. Factories
Treasuries fell, snapping a gain from last week, as stocks rose and economists forecast a U.S. central bank report today will show manufacturing in the New York region expanded.
U.S. 10-year notes yielded 10 basis points more than similar-maturity debt in Germany, after investors snapped up bunds as a haven from Europe’s debt crisis. The two rates were about the same at the start of 2012. While Treasuries have benefited from the flight to safety, analysts say gross domestic product growth will push U.S. yields higher. China’s economic expansion was stronger than analysts expected, though it was the slowest in 10 quarters, government figures showed today.
“Yields will move higher through the year” for Treasuries, said Peter Jolly, head of market research at National Australia Bank Ltd. in Sydney. “The economy will hold together in the U.S. China’s economy is slowing, but it’s not collapsing by any stretch.”
The U.S. 10-year yield increased two basis points, or 0.02 percentage point, to 1.89 percent at 8:11 a.m. in London, according to Bloomberg Bond Trader prices. The 2 percent note due in November 2021 declined 6/32, or $1.88 per $1,000 face amount, to 100 31/32.
The yield will rise to 3.1 percent by year-end, Jolly said. It set a record low of 1.67 percent on Sept. 23.
The MSCI Asia Pacific Index of shares climbed 2 percent, and the Stoxx Europe 600 Index rose 0.7 percent.
Empire Manufacturing
The Federal Reserve Bank of New York’s Empire State manufacturing index advanced to an eight-month high of 11 in January, based on a Bloomberg News survey of economists before the report today.
China’s GDP expanded 8.9 percent in the fourth quarter from a year earlier, the statistics bureau said, versus 8.7 percent projected by a separate Bloomberg survey. The report increased expectations Premier Wen Jiabao will favor easier monetary policy to spur growth in the world’s second-biggest economy.
The Fed is scheduled to buy as much as $2.75 billion of bonds due from February 2036 to November 2041 today, according to the New York branch’s website. The purchases are part of the central bank’s program to replace $400 billion of shorter- maturity Treasuries in its holdings with longer-term debt to cap borrowing costs.
Libor
The London interbank offered rate declined for a seventh day yesterday to 0.565 percent, indicating banks are becoming more willing to lend to each other.
Demand for highly-rated government bonds during Europe’s debt crisis will support Treasuries in the early part of 2012, said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets.
“Treasuries may rally for the next couple of weeks because people are fearful of a meltdown in the euro region,” he said.
For the first time, Wall Street’s biggest bond-trading firms hold more U.S. Treasuries than corporate securities, signaling concern the economy’s rebound will be too slow to sustain record demand for riskier assets.
The 21 primary dealers that trade directly with the central bank held $74.7 billion of Treasuries as of Dec. 28, compared with $61.1 billion of company debt, according to Fed data.
Treasuries Beat Bunds
U.S. debt due in 10 years and longer has advanced 31 percent in the past 12 months, the most among 174 government- bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, after accounting for currency changes. Same-maturity German bunds gained 15 percent in the period, the figures show.
U.S. 10-year rates were 22 basis points away from the record low as European leaders try to tame a crisis now in its third year and convince investors they can cut spending.
Greek officials are scheduled to meet creditors tomorrow to discuss the size of investor losses in a proposed debt swap. Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. said in a Twitter post Jan. 15 that the nation is heading for default.
The European Financial Stability Facility, Spain and Greece are scheduled to sell bills today, after borrowing costs declined when France sold securities maturing in a year and less yesterday. Spain and France plan to auction bonds on Jan. 19.
The EFSF, the euro area’s bailout fund, lost its top credit rating from Standard & Poor’s yesterday after France and Austria were stripped of their AAA grades on Jan. 13.
Investors held to their bearish stance on Treasuries in a weekly survey by Ried Thunberg ICAP, a unit of the world’s largest interdealer broker. Ried’s index on the market outlook through June fell to 44 for the seven days ended Jan. 13 from 45 the week before. A figure below 50 shows investors expect Treasuries to decline.
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
